Seagate explains reasons for distribution cull

Vendor reveals rationale behind decision to axe two of its partners

Tags: ASBIS Middle EastAlmasa IT DistributionHDDLogicom DubaiMetra Computer GroupSeagate TechnologyUnited Arab Emirates
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Seagate explains reasons for distribution cull Sofocles Socratous says Seagate is reacting to changing market behavior and protecting channel profitability by reducing the number of distributors carrying its products. (ITP Images)
By  Andrew Seymour Published  November 3, 2009

Seagate has dropped two of its distribution partners after carrying out an in-depth review of its channel model in the Middle East.

Logicom and Metra have both been told they are surplus to requirements following an overhaul that means the hard drive vendor will lead with three regional distributors instead of five.

Almasa, Asbis and FDC are the three partners that have retained their Seagate contracts.

Seagate claims the restructuring is driven by a necessity to address changes in local market demand and preserve the margin opportunities on offer to its remaining distributors.

Sofocles Socratous, senior sales manager for the Middle East, Turkey and Africa at Seagate, explained the vendor's logic: "The reason for these changes is that clearly the hard disk drive TAM (Total Available Market) has shrunk globally and therefore if you continue with the same number of players you are diluting the value proposition as a franchise and the margin opportunity for the channel."

He continued: "When we took on Maxtor in 2006 we also adopted many of their distributors. Although we did that, the business in terms of revenue that Seagate is delivering to the channel today is similar to what it was then.

"Also, if you point to the macro-economic situation, it has left us in the position that the TAM has shrunk, the channel profitability has diluted, so how can we go back to the distributors and say, ‘actually, this is a very valuable franchise - you can make very good margins and profits'. That‘s what we want to do, so the way to deliver that is to look at how much overlap there is within each distributor and decide how much value everybody brings to the table and reduce the numbers."

Seagate partners are quite accustomed to modifications at distribution level having seen Avnet, eSys and Mindware all relieved of their Middle East duties in recent years. However, the scale of the latest changes is more likely to appease partners that have previously accused the vendor of over-distribution.

Socratous is adamant that Seagate now has the country and market coverage to satisfy its ambitions, while simultaneously ensuring that authorised distribution partners have every opportunity to enhance profitability. He also expects it to lead to greater price consistency, particularly in the retail market, which remains a major battleground for the vendor.

"We need to make a profit and the only way we can do that is to make sure our distributors are making margin and profit, and that their customers are making margin and profit," he said.

One senior Middle East channel figure believes the steps that Seagate has taken reflect the increasing attention that vendors are paying to the vitality of their distribution models in the current climate.

"A few years back the big vendors like Seagate wanted to ramp up the volume and the reach and make as many sales as possible, but I think a penetration point has been reached. They are now trying to make a qualitative push into the market because they know that diluting the brand equity and the brand effort by having too many partners pitching in for the same business is not going to help anybody," said the source.

The changes that Seagate is implementing in the Middle East are understood to be part of a wider channel streamlining initiative that the vendor has also embarked upon in parts of Europe and the US.

Logicom and Metra both declined to comment.

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